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The Bank Of Ghana Keeps Its Interest Rates Unchanged At 16%

The Ghanaian Monetary Policy Committee (MPC), through the governor of the Bank of Ghana stated during a press briefing held in Accra, Ghana, the committee’s decision to maintain the policy rate at 16%.

According to Ernest Addison, “the MPC’s decision became necessary to sustain the gains the committee had made over the past two or more years”.

He revealed that the exchange rate performance since the start of the year placed pressure on the prices of goods and services (inflation) in the country, stating the committee’s decision was to keep the rate unmoved to ensure that inflation does not creep up further.

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The Governor’s Note On The Inflation Profile.

The statement of Bank of Ghana chief reads, “the recent exchange rate pass-through has slowed the disinflation process, leading to a slightly elevated inflation profile as shown in the latest forecasts. However, core inflation remains subdued and inflation expectations fairly anchored,” he further added that, “Under the circumstances, the Committee decided to keep the monetary policy rate unchanged at 16%. The Committee will continue to closely monitor both global and domestic developments and stands ready to take appropriate measures if necessary, to maintain price stability.”

How Does Affect Ghanaians And The Business owners?

1) The Borrowing Business Owner Or Individual.

The borrower who seeks to raise some fund by way of credit, will gain access to the credit without an increase in the cost of borrowing. Maintaining the policy rate, to a large extent implies that Bank lending rates will remain unchanged. However, it is relevant to understand that bank lending rates may be triggered upwardly by some factors which includes the pressure on banks to maintain asset quality and monitoring.

This pressure might lead the borrower into incurring costs like loan monitoring fee, processing fee and cash locked up as collateral. This could still make the cost of borrowing expensive.

2) Individual Investors In Economy.

Economic theories have it that there exists an inverse relationship between interest rates and investments. This means that higher interest rates increase the cost of borrowings and also discourage investment spending, as it will require investments to have higher rates of return.

For the individual investor who may be seeking a high yielding interest-bearing instrument, it is definitely not a welcomed news because of the downward trend in returns on investments (ROI).

Although, with the slowdown in fixed income investment, it is possible that the equity sector would begin to pick up as activity would shift there. Therefore, mutual funds skewed towards equity may give good yields if fund managers are picking good stocks.

Also, maintaining the Policy rate also implies that banks may keep the fixed deposit and savings rates unchanged.

Ghana’s Interest Rate And The Economy.

The Bank of Ghana (BOG), as widely anticipated, held the prime lending rate steady at 16% at its May 27th 2019 meeting. The policymakers said that regardless of the rise in headline inflation to 9.5% in April 2019 from 9.3% in March, it remains inside the medium-term target and inflation expectations are well-fastened.

Interest Rate in Ghana averaged 18.02% from 2002 until 2019, reaching an all-time high of 27.50% in March of 2003 and a record low of 12.50% in December of 2006. Also, the Ghana cedi has well-gained most of the losses which led the nation’s currency to sharply weaken against the United States dollar, since a surprise rate cut in January.

The bank further stated that economic growth remains fairly strong and it is anticipated to gain steam, braced by oil production. The Committee said it will closely monitor both global and domestic developments and is ready to take proper measures if necessary, to maintain price stability.

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